Day after day, company news depresses
Ford took a whack at the stock market Friday, announcing it will lay off as many as 5,000 workers by the end of the year and take a nearly $1 billion related charge. Each new day brings poor earnings results from another company or sector of the market. Good news big or small lifted all boats in the boom-boom years of the late '90s, but now every piece of bad news torpedoes everybody.

Once again all major market indices are well below year-end levels. Until a couple of weeks ago, the Russell 2000 held its head above water, but no longer. The Nasdaq composite index now sits at its lowest level since mid-April. Bond investors may benefit from a reduction in the Fed's federal funds rate target, but equity investors are more interested in seeing signs of economic growth that will spur revenues and profits. The wording of the Fed's statement will be particularly important to equity investors. After the last FOMC meeting and rate cut, stock prices fell because the statement indicated that the economy was still weak.

Weak stocks lift bond prices
In the first half of the week, economic indicators weren't sufficiently sluggish to lift bond prices and lower yields. Retail sales and industrial production were less weak than expected causing bond investors to worry that the end of recession in the industrial sector may be in sight. But friendly inflation news coupled with a plunge in the Philadelphia Fed's business outlook survey helped convince market players that the economy was still weak and the manufacturing sector still in trouble. An announcement by Ford that they would lay off as many as 5,000 workers by year end and take substantial charge-offs in the fourth quarter sparked a rally in the bond market, in contrast to the stock market which posted big losses. All in all, recent conditions have convinced market players that the Fed will reduce the federal funds rate target by 25 basis points when it meets next Tuesday. Bond market players will also focus carefully on the wording of the statement, looking for signs whether the Fed's easing cycle will soon come to an end or continue through the fall.